Helping seniors preserve health and financial security for themselves and their loved ones.

Monday, May 13, 2013

Inheritance can create problems for grandchild with special needs

One blessing of aging is that it gives us the opportunity to get to know
our grandchildren, and perhaps even our great-grandchildren. As we live through
our 70s and 80s we can watch them grow into adulthood. We can develop special
relationships with them and be a big part of their lives (and vice versa).

It’s no wonder then that so many grandparents want to leave an
inheritance for their grandchildren. Often the major portion of the grandparent's estate is
left to his or her children, but a small inheritance is designated for each
grandchild.

Remembering our grandchildren in our estate plan can be a wonderful
gesture of love. But be careful if you have a grandchild with special needs.
Even a small inheritance can create big problems for them.

Take the case of a client I’ll call Mary. When I met with Mary she
brought her old will with her. In that will, she left $25,000 outright to her
grand-daughter Emily. I asked Mary about Emily. She explained that she was always
especially close with her grand-daughter, who she said had “a good heart.” Emily
was age 32 and had some problems in her life. Emily was bi-polar. While she was
usually good about taking her medications, every once in a while she had a
problem and was hospitalized.

Emily was unable to work. She received a monthly benefit from SSI and her
health care was covered by Medicaid. Although she was unable to work, Emily was
able to live on her own in subsidized housing.

Mary figured that Emily could
use a little money. And Mary wanted Emily to know that she loved her deeply –
that was the main purpose for the $25,000 inheritance.

I had to explain to Mary that her wonderful loving gesture was likely to
cause Emily some problems. In order to keep her SSI and Medicaid benefits Emily
is allowed to have no more than $2,000 in the bank. The $25,000 inheritance
could mean that Emily would lose these important benefits.

But it wasn’t necessary for Emily to be disinherited. Mary could still
remember Emily and leave her an inheritance – she just needed to leave the gift
in a protected manner that wouldn’t disturb Emily’s benefits. A special needs
trust could be used to do this.

If the $25,000 inheritance was left to a special needs trust, the money would be held by a third party who would use it
to provide benefits for Emily in a manner that would not cause her to lose her
public benefits. There were several ways that Mary could implement this kind of
planning.

-Mary could
create a special needs trust in her will. Someone who Mary trusted to care for Emily’s
interests (probably a parent or sibling) would be named as trustee to manage the
inheritance and use it for Emily’s needs.

-The
inheritance could be contributed to a pooled trust account set up for Emily.
Under this option, the money would be professionally managed by a non-profit
entity and used to fund Emily’s needs without disturbing her benefits.

-The
inheritance could be contributed to a special needs trust for Emily that was
set up by Emily’s parents, or some other third party.

We called Mary’s daughter (Emily’s mother) to ask if she had done any
planning for Emily. We found out that Emily’s parents had already set up a
special needs trust for her. We ended up designating that trust as the
recipient of the inheritance from Mary.

When Mary signed her will, she gave a big sigh. I asked what that was
about. She told me she had been worrying for years about the money she wanted
to leave Emily. She hadn’t been thinking about SSI and Medicaid. Instead, she
had been concerned that if she had $25,000 in the bank, someone might take
advantage of Emily, who was the “sweetest girl in the world,” Now, she didn’t
have to worry about this anymore. Putting the money in trust would protect it
for more than just public benefit reasons.

When Mary left my office she gave me a big hug. “Thank you Mr. Marshall,”
she said. “Thank you so much.”

After she left, I felt really good. Some days it’s just great being an
elder law attorney.

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About Me

I am a Pennsylvania lawyer with over 35 years experience in estate planning and elder law. I was selected by US News Best Lawyers® as its Lawyer of the Year in Elder Law for 2014 for the Harrisburg, Pennsylvania metropolitan region.
I am of counsel to Marshall, Parker and Weber, a law firm which has offices in Williamsport, Jersey Shore, Wilkes-Barre and Scranton, Pennsylvania. I am past President and a founder of PAELA (the Pennsylvania Association of Elder Law Attorneys). However, the views expressed on this site are my own and not those of PAELA or of Marshall, Parker and Weber.
Most importantly I am a husband, father and grandfather.